NEW YORK — Walgreen Co., the biggest U.S. drugstore chain, said Tuesday that its profit sank 11 percent in the third quarter because of higher costs related to the nation’s health-care rules and its $623 million buyout of rival Duane Reade.
Those costs, CEO Greg Wasson said, converged with a weak economy, lower reimbursement rates and fewer new low-cost generic drugs.
In addition, the latest results compare with a strong showing last year when drug stores got a shot in the arm from sales related to the swine-flu pandemic.
The Deerfield, Ill., company reported net income of $463 million, or 47 cents per share, in the three months that ended May 31. That’s down from $522 million, or 53 cents per share, a year ago.
Excluding one-time items, Walgreen earned 54 cents per share, short of the 57 cents analysts were looking for, according to a poll by Thomson Reuters.
Walgreen shares slipped $1.97, or 6.5 percent, to close at $28.17.
The new federal healthcare law eliminated a Medicare Part D tax benefit for retiree health benefits. Walgreen said that reduced net income by 4 cents per share and the acquisition of Duane Reade ate up a further 2 cents. The company spent a further penny per share in restructuring costs.
Revenue, however, rose 6 percent to $17.2 billion, beating analyst expectations of $17.14 billion.
In early April, Walgreen bought Duane Reade Holdings and its 258 New York City stores, leapfrogging rivals to become the biggest metropolitan drugstore operator. Walgreen also took on $457 million in Duane Reade debt.
Those stores are performing well, the company said, and Walgreen opened 94 new locations nationwide during the quarter.
But the company’s older locations didn’t do as well. The company said revenue at stores open at least one year rose less than 1 percent. Prescription revenue rose 1 percent, and revenue from items such as cosmetics and food rose 0.1 percent.
The company has 7,522 stores around the U.S., a few hundred more than CVS Caremark. Walgreen said it filled 198 million prescriptions, including almost 20 percent of all retail prescriptions in the U.S.
Walgreen remodeled about 500 stores during the quarter as part of a plan to increase sales by sprucing up stores and improving product assortments. It has opened or remade 1,200 stores in the last few quarters, but it is slowing down the pace of conversions. The company now expects to remodel about 2,000 stores by year-end - 500 to 1,000 fewer than it previously estimated.
During a conference call, the company added little about its recently resolved dispute with CVS Caremark.
Walgreen wanted Caremark to pay it more money in return for filling prescriptions managed by Caremark, and it objected to some of the company’s policies.
Walgreen announced June 7 that it would not participate in new Caremark plans, and Caremark was prepared to stop doing business with Walgreen entirely starting in July. But on Friday the companies announced a new agreement.
No details have been released, but Wasson said he is “very pleased” with the outcome.
Business, Pages 23 on 06/23/2010